Break-up threat over Openreach recedes for BT as Ofcom reports on separation progress

Ofcom reports 'broadly satisfactory' progress over initiative to make Openreach operational independent from BT Group

Ofcom's first progress report on the legal separation of Openreach from its parent company BT Group has indicated that the regulator is "broadly satisfied" with progress.

Openreach is the infrastructure arm of BT Group. In an agreement with Ofcom, BT agreed to its formal legal separation so that it could operate as a completely independent entity, albeit one ultimately owned by BT. This was agreed due to reduce conflicts of interest.

"This greater independence will help ensure Openreach is responsive to all its customers, supporting increased investment and delivering higher service quality," according to Ofcom.

One of the biggest barriers, Ofcom reports, is completing the transfer of staff to Openreach with particular challenges around the complexity posed by the BT pension scheme, which is currently running a colossal deficit, currently pinned at £11.3 billion, and implementing the transfer in compliance with the Transfer of Undertakings (Protection of Employment) Act.

We expect to see bolder commitments over time

Among the investments that Ofcom is expecting Openreach to deliver on is a pledge to roll-out full-fibre broadband - despite large parts of the capital, including Forest Hill, Woolwich and Leytonstone lacking even fibre-to-the-cabinet. Openreach has a target of reaching three million premises by the end of 2020 following the adoption of its Fibre First strategy.

Birmingham, Bristol, Cardiff, Edinburgh, Leeds, Liverpool, London and Manchester make up the first phase of the programme which will connect up to 40 UK towns, cities and boroughs with fibre-to-the-premises, with build starting in this year.

Ofcom claimed that it has seen "positive signs on investment" from Openreach, but added: "We expect to see bolder commitments over time."

On top of that, Ofcom reports that the industry as a whole, which relies on access to Openreach's network to deliver their services to customers, is "cautiously optimistic".

Some remain uncertain whether the new arrangements will allow Openreach to act with greater independence and treat all its customers equally

Ofcom adds: "Many telecoms companies who rely on Openreach have stressed the importance of the new arrangements leading to tangible, positive change - such as greater transparency in Openreach's decision making.

"However, some remain uncertain whether the new arrangements will allow Openreach to act with greater independence and treat all its customers equally in practice."

That last point is particularly important as many internet service providers and communications companies have complained in the past that Openreach favoured its parent BT, with Ofcom's report pointing out that "further work [is] needs to ensure more independent decision-making from Openreach".

It added that Ofcom was "concerned that BT and Openreach have not yet struck the appropriate balance between BT as a parent company, and Openreach as a legally separate and more independent part of the BT Group".